Kotak Institutional Equities Research has raised the target price for Reliance Industries (RIL) to Rs 1,825 a share from Rs1,725 earlier on the back of improved economics for Jio following the hike in wireless tariffs, healthy refining margins, potential deleveraging of balance sheet led by rising operating cash flow, moderating capex and inorganic transactions.

Recent developments in the telecom sector have set the stage for higher average revenue per user (ARPU) for all players with largely unchanged relative attractiveness for Jio and weaker balance sheet of competition, but for any partial waiver on AGR liabilities, it said in a December 12 research note.

The recent hike in wireless tariffs by the telecom operators has reset the base to a higher level for all, while Jio retains the relative attractiveness of its offerings.

Kotak reckons that Jio’s prepaid tariff plans are 7-21 per cent cheaper than comparable offerings by other private players across 28-day, 84-day and 365-day validity with same data allowance.

“We expect Jio to continue gaining market share from other private players given the relative attractiveness of its tariff plans and data offerings. Accordingly, we model its wireless subscriber base to increase to 465 mn by March 2022 from 355 mn as on September 2019. We assume Jio’s wireless ARPU to increase to Rs 155-169/month in FY2021-22 (from Rs 121/month in 1HFY20), a tad lower than our telecom team’s assumption of Rs 168-183/month for Bharti Airtel,” it said in the note.

“We have also factored in a continuation of IUC charges for now and baked in a slower roll-out for FTTH services versus our earlier expectations, given limited on-the-ground progress on the commercial offering,” Kotak Institutional Equities wrote.

Kotak also expects RIL to benefit from its refining complexity in the current environment of large negative spreads on high sulfur fuel oil and favourable increase in differentials between sweet-sour varieties of crudes in the run-up to implementation of IMO 2020 rules for marine fuels. RIL does not produce any fuel oil and has opportunistically enhanced its ability to process heavy and sour varieties of crude by timely expansion of its coker units.

“We are not too perturbed by the inordinate delays in commercialisation of the pet coke gasification project as RIL’s refining fuel costs are already quite low amid sharply lower spot LNG prices,” it added.

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